November 6, 2009
The Treasury recently reported that the federal government recorded a total budget deficit of $1.4 trillion in fiscal year 2009, about $960 billion more than the deficit incurred in 2008. CBO notes, in its latest Monthly Budget Review, that the federal deficit rose as a share of the nations gross domestic product (GDP) from 3.1 percent in 2008 to 9.9 percent in 2009the highest deficit as a share of GDP since 1945.
As shown in the figure below, federal spending and receipts diverged dramatically in 2009, reflecting the weakening economy and the federal response. The increase in the deficit of almost 7 percentage points of GDP from 2008 reflected a sharp drop in revenues and a substantial increase in spending. Receipts in 2009 tumbled to $2,105 billion, a decrease of $419 billion, or 17 percent, from 2008. That year-over-year decline follows a small drop in revenues for fiscal year 2008 and is the largest annual percentage decline in revenues in more than seven decades. Total revenues fell from 17.5 percent of GDP in 2008 to 14.8 percent of GDP in 2009; individual income tax receipts showed the largest decreasefrom 7.9 percent to 6.4 percent of GDP.
Receipts and Outlays asa Percentage of GDP
Outlays rose by 18 percent in 2009, the fastest rate of growth since 1975. Three initiativesthe Troubled Asset Relief Program (TARP), net cash infusions for Fannie Mae and Freddie Mac, and ARRAdrove that growth, adding $353 billion to outlays in 2009, or 2.5 percent of GDP. Specifically, stimulus spending from ARRA totaled $108 billion in 2009$32 billion for Medicaid, $22 billion for unemployment benefits, and $54 billion for other programs and activities. All other federal spending accounted for 22.2 percent of GDP in 2009, up from 20.6 percent in 2008.
Payments for unemployment benefits in 2009 were more than 2 times the amount paid in 2008, an increase of $73 billion. That jump was caused by substantially greater unemployment and increased benefits. Conversely, spending for net interest on the public debt decreased by $58 billion (from 1.8 percent of GDP in 2008 to 1.4 percent in 2009) because of lower short-term interest rates and lower costs for inflation-indexed securities.